Turmoil in global LNG markets curbing long-term demand growth
Bangladesh hiked gas prices for various sectors from 14% to 179% to reduce fiscal burdens
Global liquefied natural gas (LNG) supplies are likely to remain tight through 2025, curbing demand growth in key Asian import markets, highlighted in the recent “Global LNG Outlook 2023-2027” by Institute for Energy Economics and Financial Analysis (IEEFA).
The report finds that last year's LNG market turmoil — characterized by record high prices and unreliable supplies — has undermined long-term LNG demand growth in both Europe and Asia, according to a press release issued on Wednesday.
In 2022, India, Bangladesh, and Pakistan slashed LNG demand by a combined 16%. Concerns over fuel security, unaffordability, rapidly depleting foreign currency reserves, and demand destruction could limit the region's medium-term LNG imports.
High LNG prices and inadequate supplies caused widespread load shedding and economic harm, casting doubt on the reliability of LNG as a fuel source.
Bangladesh met 21% of its gas demand through imported LNG in FY2020-21. Roughly 20% of the country's total LNG imports came from the spot market, at an average price of $7.98/MMBtu.
Expensive fossil fuel imports have increased prices of liquid fuels and electricity tariffs in Bangladesh.
Recently, Bangladesh hiked gas prices for various sectors, excluding household, transport, and fertilizer, from 14% to 179% to reduce fiscal burdens.
In 2022, European countries boosted LNG imports by 60% to make up for declining pipeline gas shipments from Russia. Europe's red-hot LNG demand drove global spot prices to all-time highs, forcing price-sensitive Asian buyers to slash LNG purchases and curtail plans for new LNG imports.
Southeast Asian buyers face challenges from high prices and infrastructure constraints. In July 2022, however, Bangladesh government ceased spot market purchases due to high prices. Long-term LNG contracts with deliveries starting before 2026 are reportedly sold out globally, forcing Southeast Asian countries into expensive spot markets.
Bangladesh, Pakistan, and India are actively seeking new long-term LNG supply contracts from diverse suppliers. Meanwhile, suppliers under Bangladesh's two long-term LNG contracts — Qatar Gas and Oman Trading International — exercised downward quantity tolerances to limit contracted volume deliveries. Until then, incremental growth in LNG demand may have to come from volatile spot markets, since existing contractors are unable to increase supplies in the short term.
However, Europe's LNG demand could remain strong in 2023 but is poised to fall, as EU climate and energy security policies curtail gas demand by at least 40% through 2030. Although new LNG terminals could boost the continent's import capacity by one-third by the end of 2024, Europe's ambitious energy transition targets mean that much of the new capacity could remain unused.
The Russia-Ukraine crisis has exposed long-term financial risks throughout the LNG value chain. In 2022, high spot prices and supply disruptions earned LNG a reputation as an expensive and unreliable fuel source, undermining the prospects for demand growth in key markets. When large volumes of new supply enter the market starting in mid-2025, it could trigger a supply glut, heightening the financial and pricing risks for LNG exporters and traders.